Getting serious about the defence budget

India’s defence budget for the year 2017-18 was 1.63% of GDP—the lowest in the past 50-odd years in terms of percentage of GDP. Photo: HT

The 69th Republic Day parade put on a grand show that included top-shelf armaments and equipment, including indigenously made radars and missiles. Perception, however, is not always the same as reality. This is certainly true when it comes to our Armed Forces. India has had the unique distinction of being the largest importer of defence equipment in the world for the past few years. This gives the impression that a lot of modern equipment, weapons and sensors are being purchased for all the three services. Let us see what the statistics tell us.

Most countries spend between 2-2.5% of their gross domestic product (GDP) on defence. As per the North Atlantic treaty, North Atlantic Treaty Organization countries are expected to spend at least 2% of GDP on defence. India’s two neighbours, China and Pakistan, consistently spend over 2% of their GDP on defence. Yet, India’s defence budget for the year 2017-18 was 1.63% of GDP—the lowest in the past 50-odd years in terms of percentage of GDP.

The lion’s share of the budget is always taken up by revenue expenditure and the balance is left for capital acquisition. With the implementation of the 7th Central Pay Commission (CPC) and One Rank One Pay (Orop), revenue expenditure in the past couple of years has gone up, leaving little for capital expenditure. Considering the committed liabilities arising out of the contracts already signed, the amount of money available for new projects is a measly Rs8,000 crore for the year 2017-18 (out of a total defence budget of Rs2,74,114 crore).

That means that only 3.6% of the defence budget is available for the modernization of all three Armed Forces for an entire year.

This low budget allocation is surprising for two reasons. First, despite the sluggish recovery of the global economic environment until recently, the Indian economy has shown steady growth, with GDP showing an increase of more than 7% consistently over the past three years. Second, the finance minister, Arun Jaitley, on two occasions—in 2014 and again in 2017—wore the hat of the defence minister. He is therefore very well aware of the voids in military capabilities of the three services and the urgent need to address them.

The shortfall of equipment in all the three services is much more than the ones reflected in the strategic partnership chapter of the Defence Procurement Procedure 2016. The Indian Navy has already “requested for information” on naval utility helicopters, naval multi-role helicopters, submarines through Project 75(I) and multi-role carrier-borne fighters for its aircraft carriers.

The Indian Air Force has been awaiting procurement of fighters as replacements for the impending retirement of its old fighter aircraft for over a decade. Despite the induction of 36 Rafale and 83 indigenous Tejas fighter aircraft, by 2025, the air force will have only 31 squadrons of fighters as against the overall requirement of at least 42. This is due to the impending de-induction of 10-odd squadrons of MiG 21 and MiG 27 aircraft.

The Indian Army has also been running mostly on obsolescent equipment. Other than upgrading its tanks and infantry fighting vehicles, the army urgently needs the future infantry combat vehicles. It has also “requested for proposal” for future-ready combat vehicles.

Each of these proposals is for more than $3 billion (or more than Rs20,000 crore each). All the three services have various other proposals which have been accorded in-principle approval—known as the acceptance of necessity—but are pending signing of contracts.

And all of this equipment is not only required, but required to be manufactured in India, which increases the cost of each equipment manifold.

Since the arrival of the Narendra Modi government in 2014, the impetus has shifted heavily towards Make In India in all sectors, including defence. The Defence Procurement Procedure has been amended to facilitate Make In India and the new chapter on strategic partnership has been introduced with the aim of achieving self-reliance in defence manufacturing.

However, the problem with setting up a manufacturing facility for any product is that it costs much less when bought off the shelf than when manufacturing it. For example, a fighter aircraft or helicopter bought off the shelf would cost much less than trying to manufacture it, due to the inherent costs of research and development, transfer of technology, training, skill development, setting up of initial infrastructure, etc.

Therefore, if India is looking at self-reliance through manufacturing in any defence sector, the government needs to invest much more than usual to achieve it.

India has grand intentions of self-reliance in defence manufacturing and has aligned its procurement procedures accordingly. This is not just with the vision of arguably being a regional superpower, but also with the intent of creating jobs and making India a manufacturing hub for all types of defence equipment for consumption and export. The investment thus made in defence manufacturing will benefit not only the Armed Forces, but the nation as a whole.

The decades of gradual reduction of the capital budget have driven the Armed Forces to make do with mostly obsolete equipment. The government needs to correct this by meeting the world standard—especially given India’s strategic realities— and allocating at least 2% of GDP to defence. This should be a starting point from which it is gradually increased to an appropriate level. It needs to be done urgently—not just for the sake of modernizing and strengthening the Armed Forces, but also to make India a manufacturing power, as envisioned by the prime minister.